The topic of bad credit is a delicate one. One of the biggest reasons behind people having a bad credit rating is that they try to move their debts around from one place to another. It can be embarrassing when your credit card refuses to extend your credit while you are making an online purchase or at a shop. Have you ever sat down and tallied up the reasons why you are currently in debt?
The first thing you should ask yourself is, “Do I spend recklessly?” and second, “Have I been paying my bills on time?” Of course, the first reason is probably the cause but if you do keep a watch on your spending, then it might be your late payments that are causing the trouble. Let me tell you, FICO does not look kindly upon those people who have a bad credit rating. You might be losing any future chances of taking out loans just because that bad credit rating is sitting on your credit report like a number of doom.
The Basics of a Good Credit Rating According To FICO
Did you know that around 90% of all lending institutes use the FICO score to make any credit decisions before granting your request? Your scoring range though is only one of the points that the lender associates with your credit report info but it is the most important thing that allows them to make informed, fair and quick lending decisions. Following are the ranges that FICO divides from poor to exceptional:
- Poor: 579 and lower
- Fair: 580 to 669
- Good: 670 to 739
- Very Good: 740 to 799
- Exceptional: 800+
What Effects Your Credit Rating
- Late payments on important matters such as your credit card, mortgage, electricity and gas bills and personal loans
- A hearing for County Court Judgement for unpaid bills
- Applying for more than one credit together
- Several unused credit card accounts
- Mistakes on your credit report
- Being in a joint loan or account with someone who has a bad credit history Now that you have understood how your FICO rating works and what affects it, let’s focus on how you can start building up your credit rating:
The first thing you need to do is find out what exactly your credit score is and what the reasons behind its fall are. You can easily order your credit report for £2. Try to order it from two credit check agencies at least to make sure that the credit score is on point and the report has no mistakes. Apply through Experian and Equifax as they are the most reliable agencies in the UK.
Five Steps on How to Improve Your Credit Score
Step 1 - Setup a Payment Reminder
As mentioned earlier, not paying your debts on time is the biggest factor that contributes to your credit score’s falling. You need to understand the importance of money management and how to make payments on time. What you can do is apply for a ‘bank reminder’ that will notify you every time your next payment is due. Keep track of each of your payment in a diary and update it regularly with payments made and those that are due next.
Step 2 - Improve your Payment History
Your payment history amounts to 35% of your credit score. Paying bills on time and not using your credit card for trivial things can improve your credit score in a matter of months, i.e. if you pay attention to this side more.
Step 3 - Eliminate Your Credit Card Balances
The amount owed in debts and credit cards equals to 30% of your credit core. Though people might say that closing some of your credit cards can put you in a lurch, I believe the opposite is more dangerous. However, the trick is not just to stop spending from those credit cards. That will do you no good!
The trick is to eliminate any balances that you have on those credit cards. Keeping multiple credit cards with varying interest rates hurts your credit score more than keeping one with a reasonable interest rate. Once those balances are eliminated, only use one credit card that has the lowest interest rate. When your debts are settled, you will have a clearer perspective on how to manage your different credit accounts together.
Step 4 - Leave Old (Paid) Debts on Your Credit Report
Any debts or good accounts remain for seven years on your credit report. The length of your credit history amounts to 15% of your credit score. That being said, if you have paid an old debt, let it remain on your credit report. Just because it took you months or years to pay it back does not mean that when it’s finally paid, you need to get it off the report. This is why you should not close your credit cards when you have a solid payment record. As mentioned in step three, simply avoid using them until you get a hang of how to manage your bills and debts.
Step 5 - When In Extreme Trouble, Go For Credit Builder Cards
These types of credit cards can be good or bad for your credit score. Any new credit, as well as the different types of credits, each amounts to 10% of your credit score. The trick with these cards is that they keep you on your toes. They have small credit limits but high interest rates. While they may lend you a big helping hand in building your credit score, you should only opt for them when you are sure you can make timely payments and afford the high interest rate.
When you apply for a loan, lenders do not just look at your credit score. Although that is the most important thing on which the loan is based but factors such as your payment history, payment timings and previous loans also matter. So, instead of applying for a credit at once, ask for free quotes or compare interest rates on the internet. Quiddi Compare is a UK based price comparison website that offers you the benefit of comparing loan amounts and their interest rates. The site offers some of the best interest rates for accounts, cards, loans and more.